AI
Monday, February 21, 2005 6:53:58 AM
~:~:~CYCLE/TREND Update for the Week Ahead~:~:~
Overview:
Another volatile week is in the books, but I have a feeling a resolution is close at hand. We have been in a funk for about 3 weeks now or since the beginning of Feb. and the market is struggling to make up its mind. A battle of internals and as mentioned in the last update with which this post replies I stated the following; An argument can be made that we are consolidating before a move to test the highs and an argument can be made that there is no follow through as we muddle through the day-to-day action. While both of these are valid arguments my belief is that we are weakening, not strengthening. I still stand by this belief and it is mainly due to the internals. I posted some weekly charts last week that more or less support my belief #msg-5450832 and there are more of the usual suspects still lingering in the background which I will cover a little later. Oil, Gold and the CRB have been making nice moves while the U$D has begun to weaken again. Then Big Al’s testimony before Congress was something, what I am not sure. I guess I should not be surprised being as he is on his way out, but denial (and I am not talking about the world’s longest river) would be an understatement. Also of note this week was Optons Expiry and I have to say I was somewhat surprised by the lack of Ooomph provided by the Qubes which closed below MaxPain.
Economic #’s:
It was a rather busy week and once again we received mixed and in some cases conflicting data. Having said that, here’s how the numbers stand…
NY Empire State Index slowed to 19.19 which was below the 20.0 expected and the previous months 20.08. The New Orders Index fell to 17.3 from 21.0 with the Labor Market index dropping to 8.9 from 12.7 and the Pricing Index also edged lower to 48.8 from 50.4.
Retail Sales fell to –0.3% and lower than the 1.1% previously reported with the dip mainly attributed to a fall off in Auto Sales. Excluding autos, retail sales rose 0.6%. ICSC-UBS Weekly Chain Store Sales fell to 0.1%, considerably lower than last weeks reading of 2.2% while Johnson Redbook Retail Sales came in at 2.0% and well above the 0.8% previously reported.
Business Inventories came in at 0.2%, in line with expectations and lower than the 1.1% previously reported. Although excluding motor vehicle parts, retail inventories rose 1.0%. Stocks at manufacturers fell 0.1% while Wholesale Inventories rose 0.4%.
Housing Starts climbed 4.7% to 2.159 Mln units for Jan. which was higher than expectations and the prior months 2.063 Mln units. It was also the highest total since Feb’84’s reported 2.260 Mln units. Building Permits also increased to 2.105 Mln from 2.069 Mln.
MBA Mortgage Applications slipped 0.5% as the Index of Mortgage Applications came in at 732.3, lower than the prior weeks 735.9. Weakness was seen in both applications for mortgages to buy homes, down 4.8% on a seasonally adjusted basis and Refi’s, down 4.1%. Refi’s accounted for 49.9% of last weeks total applications, up from 48.9% a week earlier, with adjustable-rate mortgages falling to 30.7% from 31.9%. The Consumer Comfort Index came in unchanged at a –10.
Capacity Utilization came in at 79.0% or a touch lower than the 79.3% expected and the previous months 79.1%. Industrial Production came in at 0.0%, basically flat and lower than the 0.3% expected and the prior months 0.7%.
Initial Jobless Claims continued to decline coming in at 302K or 13K lower than expected and 2K lower than last weeks report.
LEI (Leading Economic Indicator) fell -0.3% to 115.6, lower than market expectations and the 0.3% reported in the prior month.
Philly Fed rose to 23.9 exceeding market expectation and considerably higher than the 13.2 previously reported. The 6 month outlook for business conditions edged higher to 26.5 from 25.5 a month earlier, New Orders Index was also higher, rising to 11.7 from 9.8 although the Employment Index slipped to 12.3 from 17.0 while Prices Paid slipped to 43.5 from 66.1 the prior month.
PPI The overall index increased 0.3% and was in line with expectations, but the Core PPI, which excludes food and energy prices rose 0.8% compared to an expected and previously reported 0.2%. The current increase is the most in 6 years while
the PPI is up 4.2% over the past year.
Michigan Sentiment came in lower at 94.2 from the expected and previously reported 95.5 for the 2nd straight month of declines.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 2.1 Mln bbls, but according to API rose 5.6 Mln bbls. Distillates according to DoE fell 3.1 Mln bbls and also according to API fell 3.1 Mln bbls. Gasoline according to DoE rose 4.9 Mln bbls, but according to API rose 4.3 Mln bbls.
Upcoming Econ events for the trade shortened week ahead are Consumer Confidence, CPI & Core CPI, FOMC Minutes (this should be interesting), Durable Orders, Initial Jobless Claims, Help Wanted Index, Chain Deflator, GDP and Existing Home Sales.
A couple of things I would like to briefly touch on are the FDA and M&A activity. First the FDA… As I am sure most are aware, Vioxx won a vote of recommendation to be put back into consumer’s hands. First of all it barely made the votes with 17 “for” and 15 “against”. Now I can understand that people in pain need relief, but when one of the side effects is death I do not see how you can market such a drug. And since when has this become such a political process? Voting on whether or not to return a drug to pharmacy shelves that has caused who knows how many deaths? If they are going to vote on such a thing a huge majority should be required. I know, black label, it's just a panel review and not the final FDA approval, blah, blah, blah. It still does not make it right until they at least investigate this thoroughly, I would hate to see the almighty buck become more important than peoples lives. Let’s now talk about M&A activity. Mergers and acquisitions seem to be in the news almost daily. Sure, companies are increasing dividends and share buybacks, but they have not been reducing the shares outstanding. It’s all about pay through options and lower wages. They are not creating any jobs either, if anything more jobless. The first cuts made are to employees, less salaries and benefits. These companies never cease to amaze me and are always finding new ways to reduce costs. M&A’s are just another way of a means to an end… Bolster the balance sheet, cut jobs and reduce pay and benefits. With the tax breaks and incentives to outsource, why not? Big business is like a fox and the federal government is the henhouse and while they would like us to believe that these incentives will be used to create jobs or expand economic growth, it isn’t going to happen. Trickle down economics does not work, there is no trickle down. It is greed-o-nomics, plain and simple. Instead big businesses sit on war chests of money that most likely will never find its way back into the economy. It will not go to new equipment nor to creating jobs, that money will go to M&A’s, the upper most management, board members and exurbanite bonuses. Don’t believe me? Just look at Carly Fiorina. She was essentially fired and still received a $100+ Mln golden parachute. There is more to a vibrant nation and healthy economy than fat cats and corporate profits. So far it has been good for Wall Street and for shareholders, but it’s bad in SO many other ways. Our economy and nation’s well being is reminiscent of the patient that takes Vioxx where taking the drug may be good for relieving pain as long as it does not kill them first. Russian roulette anyone?
What can we expect now?:
As mentioned last week; We also have had a time of it negotiating the COMP 2080 area, this is formidable resistance and sooner or later we will either move through this area toward 2100 or fall back to 1980. Well we moved through it and like a magnet were pulled back to the 2060 area. I think we could very well see 100pts get shaved off of the COMP in fairly short order. A lot may depend on Econ #’s, but another thing I have noticed besides weak follow through is that bad news seems to be having an affect again. What has been happening in Iraq, on the Oil front and here at home is starting to sink into the markets’ psyche. We also had a Bradley turn on/around the 16th, which coincided with a Fib timeline that so far looks like a possible turn in trend. Whether it sticks is yet to be seen, we should know more very soon. Another thing to keep an eye on and was brought to my attention by a poster on the Your Economy board is the COT data. It looks to me like a bunch of Small speculators are about to get cleaned out of the COMP with Large speculators set up for the same treatment on the DJIA. Commercials are heavily short across the board. Also the fund distribution for the past week has found its way into non-domestics, Energy, Utilities and cash while fund flows found there way out of Small Caps and REIT’s. I think the majority of what fund managers were going to put to work has run its course and even at the peak towards the beginning of the month barely moved the market up.
On a technical note, we have Bullish Advisors at 56.6% with Bearish Advisors at 21.2%, VIX/VXN trends which were in a declining channel seem to be leveling off a bit which looks to me like a basing may begin. I don’t think we can get much more complacent and I would not be surprised if these indicators have found a range like bottom. Equity P/C Ratio is at .594 with a 21DMA of .590. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. The $NASI Daily (Summation) is entangled with the 200DMA and the 50DMA is diving towards this area for a possible cross under. The $NAMO Daily (McClellan) is in a steep decline about to move below the 50DMA where the 50DMA crossed below the 200DMA back in early Jan’05. The $NAHL Daily (Highs/Lows) is tipping the 200DMA with the 50DMA beginning to curl down towards this area. The $NAAD Daily (Advance/Decline) has moved into negative territory and is looking to move back towards the median line. The BP%'s are basically flat. I have included the charts of these indicators below for your viewing pleasure. I also posted this annotated COMP chart last Thursday night #msg-5477620 prior to Ops Exp and think it is worth a gander...
NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. LT Holds: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX and TAVIX
Disclaimer: This disclosure is not a recommendation to buy or sell or to do as I do. It is to let people know what I am doing and give my thoughts on current market conditions. I am not a day trader and only attempt to identify up/down trends and play the swings.
Overview:
Another volatile week is in the books, but I have a feeling a resolution is close at hand. We have been in a funk for about 3 weeks now or since the beginning of Feb. and the market is struggling to make up its mind. A battle of internals and as mentioned in the last update with which this post replies I stated the following; An argument can be made that we are consolidating before a move to test the highs and an argument can be made that there is no follow through as we muddle through the day-to-day action. While both of these are valid arguments my belief is that we are weakening, not strengthening. I still stand by this belief and it is mainly due to the internals. I posted some weekly charts last week that more or less support my belief #msg-5450832 and there are more of the usual suspects still lingering in the background which I will cover a little later. Oil, Gold and the CRB have been making nice moves while the U$D has begun to weaken again. Then Big Al’s testimony before Congress was something, what I am not sure. I guess I should not be surprised being as he is on his way out, but denial (and I am not talking about the world’s longest river) would be an understatement. Also of note this week was Optons Expiry and I have to say I was somewhat surprised by the lack of Ooomph provided by the Qubes which closed below MaxPain.
Economic #’s:
It was a rather busy week and once again we received mixed and in some cases conflicting data. Having said that, here’s how the numbers stand…
NY Empire State Index slowed to 19.19 which was below the 20.0 expected and the previous months 20.08. The New Orders Index fell to 17.3 from 21.0 with the Labor Market index dropping to 8.9 from 12.7 and the Pricing Index also edged lower to 48.8 from 50.4.
Retail Sales fell to –0.3% and lower than the 1.1% previously reported with the dip mainly attributed to a fall off in Auto Sales. Excluding autos, retail sales rose 0.6%. ICSC-UBS Weekly Chain Store Sales fell to 0.1%, considerably lower than last weeks reading of 2.2% while Johnson Redbook Retail Sales came in at 2.0% and well above the 0.8% previously reported.
Business Inventories came in at 0.2%, in line with expectations and lower than the 1.1% previously reported. Although excluding motor vehicle parts, retail inventories rose 1.0%. Stocks at manufacturers fell 0.1% while Wholesale Inventories rose 0.4%.
Housing Starts climbed 4.7% to 2.159 Mln units for Jan. which was higher than expectations and the prior months 2.063 Mln units. It was also the highest total since Feb’84’s reported 2.260 Mln units. Building Permits also increased to 2.105 Mln from 2.069 Mln.
MBA Mortgage Applications slipped 0.5% as the Index of Mortgage Applications came in at 732.3, lower than the prior weeks 735.9. Weakness was seen in both applications for mortgages to buy homes, down 4.8% on a seasonally adjusted basis and Refi’s, down 4.1%. Refi’s accounted for 49.9% of last weeks total applications, up from 48.9% a week earlier, with adjustable-rate mortgages falling to 30.7% from 31.9%. The Consumer Comfort Index came in unchanged at a –10.
Capacity Utilization came in at 79.0% or a touch lower than the 79.3% expected and the previous months 79.1%. Industrial Production came in at 0.0%, basically flat and lower than the 0.3% expected and the prior months 0.7%.
Initial Jobless Claims continued to decline coming in at 302K or 13K lower than expected and 2K lower than last weeks report.
LEI (Leading Economic Indicator) fell -0.3% to 115.6, lower than market expectations and the 0.3% reported in the prior month.
Philly Fed rose to 23.9 exceeding market expectation and considerably higher than the 13.2 previously reported. The 6 month outlook for business conditions edged higher to 26.5 from 25.5 a month earlier, New Orders Index was also higher, rising to 11.7 from 9.8 although the Employment Index slipped to 12.3 from 17.0 while Prices Paid slipped to 43.5 from 66.1 the prior month.
PPI The overall index increased 0.3% and was in line with expectations, but the Core PPI, which excludes food and energy prices rose 0.8% compared to an expected and previously reported 0.2%. The current increase is the most in 6 years while
the PPI is up 4.2% over the past year.
Michigan Sentiment came in lower at 94.2 from the expected and previously reported 95.5 for the 2nd straight month of declines.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 2.1 Mln bbls, but according to API rose 5.6 Mln bbls. Distillates according to DoE fell 3.1 Mln bbls and also according to API fell 3.1 Mln bbls. Gasoline according to DoE rose 4.9 Mln bbls, but according to API rose 4.3 Mln bbls.
Upcoming Econ events for the trade shortened week ahead are Consumer Confidence, CPI & Core CPI, FOMC Minutes (this should be interesting), Durable Orders, Initial Jobless Claims, Help Wanted Index, Chain Deflator, GDP and Existing Home Sales.
A couple of things I would like to briefly touch on are the FDA and M&A activity. First the FDA… As I am sure most are aware, Vioxx won a vote of recommendation to be put back into consumer’s hands. First of all it barely made the votes with 17 “for” and 15 “against”. Now I can understand that people in pain need relief, but when one of the side effects is death I do not see how you can market such a drug. And since when has this become such a political process? Voting on whether or not to return a drug to pharmacy shelves that has caused who knows how many deaths? If they are going to vote on such a thing a huge majority should be required. I know, black label, it's just a panel review and not the final FDA approval, blah, blah, blah. It still does not make it right until they at least investigate this thoroughly, I would hate to see the almighty buck become more important than peoples lives. Let’s now talk about M&A activity. Mergers and acquisitions seem to be in the news almost daily. Sure, companies are increasing dividends and share buybacks, but they have not been reducing the shares outstanding. It’s all about pay through options and lower wages. They are not creating any jobs either, if anything more jobless. The first cuts made are to employees, less salaries and benefits. These companies never cease to amaze me and are always finding new ways to reduce costs. M&A’s are just another way of a means to an end… Bolster the balance sheet, cut jobs and reduce pay and benefits. With the tax breaks and incentives to outsource, why not? Big business is like a fox and the federal government is the henhouse and while they would like us to believe that these incentives will be used to create jobs or expand economic growth, it isn’t going to happen. Trickle down economics does not work, there is no trickle down. It is greed-o-nomics, plain and simple. Instead big businesses sit on war chests of money that most likely will never find its way back into the economy. It will not go to new equipment nor to creating jobs, that money will go to M&A’s, the upper most management, board members and exurbanite bonuses. Don’t believe me? Just look at Carly Fiorina. She was essentially fired and still received a $100+ Mln golden parachute. There is more to a vibrant nation and healthy economy than fat cats and corporate profits. So far it has been good for Wall Street and for shareholders, but it’s bad in SO many other ways. Our economy and nation’s well being is reminiscent of the patient that takes Vioxx where taking the drug may be good for relieving pain as long as it does not kill them first. Russian roulette anyone?
What can we expect now?:
As mentioned last week; We also have had a time of it negotiating the COMP 2080 area, this is formidable resistance and sooner or later we will either move through this area toward 2100 or fall back to 1980. Well we moved through it and like a magnet were pulled back to the 2060 area. I think we could very well see 100pts get shaved off of the COMP in fairly short order. A lot may depend on Econ #’s, but another thing I have noticed besides weak follow through is that bad news seems to be having an affect again. What has been happening in Iraq, on the Oil front and here at home is starting to sink into the markets’ psyche. We also had a Bradley turn on/around the 16th, which coincided with a Fib timeline that so far looks like a possible turn in trend. Whether it sticks is yet to be seen, we should know more very soon. Another thing to keep an eye on and was brought to my attention by a poster on the Your Economy board is the COT data. It looks to me like a bunch of Small speculators are about to get cleaned out of the COMP with Large speculators set up for the same treatment on the DJIA. Commercials are heavily short across the board. Also the fund distribution for the past week has found its way into non-domestics, Energy, Utilities and cash while fund flows found there way out of Small Caps and REIT’s. I think the majority of what fund managers were going to put to work has run its course and even at the peak towards the beginning of the month barely moved the market up.
On a technical note, we have Bullish Advisors at 56.6% with Bearish Advisors at 21.2%, VIX/VXN trends which were in a declining channel seem to be leveling off a bit which looks to me like a basing may begin. I don’t think we can get much more complacent and I would not be surprised if these indicators have found a range like bottom. Equity P/C Ratio is at .594 with a 21DMA of .590. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. The $NASI Daily (Summation) is entangled with the 200DMA and the 50DMA is diving towards this area for a possible cross under. The $NAMO Daily (McClellan) is in a steep decline about to move below the 50DMA where the 50DMA crossed below the 200DMA back in early Jan’05. The $NAHL Daily (Highs/Lows) is tipping the 200DMA with the 50DMA beginning to curl down towards this area. The $NAAD Daily (Advance/Decline) has moved into negative territory and is looking to move back towards the median line. The BP%'s are basically flat. I have included the charts of these indicators below for your viewing pleasure. I also posted this annotated COMP chart last Thursday night #msg-5477620 prior to Ops Exp and think it is worth a gander...
NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. LT Holds: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX and TAVIX
Disclaimer: This disclosure is not a recommendation to buy or sell or to do as I do. It is to let people know what I am doing and give my thoughts on current market conditions. I am not a day trader and only attempt to identify up/down trends and play the swings.
**Happy Trading**
Your Economy #board- 1948
Trade Smarter with Thousands
Leverage decades of market experience shared openly.
